The Wall Street Journal has a story about how retailers are working to reduce the number of returns they are getting from shoppes and cut down the costs of these returns, which have become onerous.
But the problem, the story makes clear, is that they may be working against the preferences of their customers.
According to the story, “Return rates surged during the Covid-19 pandemic, as more consumers shifted to online shopping—and frequently bought multiple sizes of the same item because they were unsure of the fit. Return rates in 2022 were roughly 14% higher than in 2019, according to Narvar, a returns-management company. Shipping, warehousing and labor add up to make returns costly. In addition, many items are out of season by the time they come back to retailers and must be resold at hefty markdowns, which can further eat into profits.”
One estimate is that “it costs a company about $27 on average to handle the return for a roughly $100 online order,” and that cutting returns by 50 percent could increase profits as much as 25 percent.
“The move to reduce returns is part of a sea change in retailing that is giving priority to profits over growth,” the Journal writes. “Valuations for many digital retailers have declined in recent years and capital has become scarcer amid rising interest rates and concerns about the economy, executives and investors said.
“Many of the largest e-commerce companies took years to turn a profit and a large number still lose money. The high cost of returns is partly to blame, in addition to higher customer acquisition costs following changes made by Apple, Google and other technology companies that restrict how shoppers are tracked as they move around the internet, executives and analysts said.
“Amazon, which set the bar for free and fast returns in e-commerce, is trying to dial back some of that behavior … Several months ago, Amazon began showing which products have above-average return rates for their categories. The online retail giant also charges a $1 fee to shoppers who return items via UPS when an Amazon Fresh, Whole Foods Market or Kohl’s store is nearby. Amazon owns Fresh and Whole Foods, and it has a partnership with the Kohl’s department-store chain to process returns.”
Other retailers, the story says, “are also shortening return windows and offering incentives to shoppers who return items to stores. The in-store return rate nearly doubled last year to 16.5% from about 8% in 2021, as more shoppers returned online purchases to stores, goTRG said.”
But here’s the reality these retailers are facing: “Some 69% of shoppers said they would stop shopping at retailers who charge for returns and 49% said they would pay more up front for free returns, according to a November poll of 3,000 U.S. and U.K. consumers by Quantum Metric, a digital analytics company.”
KC’s View:
I do believe that Amazon will be the canary in the coal mine on this one – because it set the tone for fast and free delivery and free returns, it will be Amazon that, if it changes its policies and reduces benefits, that will make it acceptable for other companies to do the same.
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